The consolidation trend which has been sweeping both the European and US asset management industries in the last couple of years is just the beginning of a more profound long-term trend. This is set to affect both manufacturing and distribution, said Pioneer Investments’ Milan-based chief executive officer Giordano Lombardo.

Complimentary places are still available for PWM readers to attend the sixth in the European Fund Series of afternoon conferences, taking place at the Imperial Hotel in Vienna on 14 February. The event, sponsored by BNP PAM, will focus on key trends in the Central and Eastern European Investment fund industry. There will also be interactive panels on the regulatory framework and future distribution challenges.

High-profile fund manager Theodora Zemek has made some dramatic statements about the future of fixed interest. Elisa Trovato reports

Spain’s newly-approved hedge funds must now prove they have what it takes to attract business. Paula Garrido reports

Catherine Tillotson reports on the consequences of a big-name US deal

Despite optimism towards Asian equities, worries over Japanese stability have prompted many investors to turn their back on equities in the region. Elizabeth Cripps reports

Alain Papiasse of BNP Paribas was brought in to pursue an aggressive growth approach and dust down some of the company’s forgotten corners. But the purchase of Italian chain BNL has given him an

exciting distribution opportunity. Yuri Bender reports

Making sure you have a comprehensive range of financial products is now about more than just plugging gaps by adding another product – it is about creating business solutions for to meet clients’ specific needs. Elisa Trovato reports

Balance skill with market risk

It is crucial in sub-advisory investment management to pick managers that can offer clients the highest likelihood of strong consistent returns. While great care is always taken over assessing managers’ philosophy and process (in order to build up an idea of potential future performance), less time is typically spent on ensuring that the manager has the opportunity to apply that skill in as many areas as possible.

Last month, we addressed how relaxing the long-only constraint on equity portfolios can enable managers to fully express their negative, as well as positive, views on a stock. This may enable skilful managers to increase the target returns per unit of risk (indicated by a higher information ratio). This month we examine new approaches which can be taken in the global fixed income and currency market that provide investors with access to manager skill while seeking to mitigate market risks.

The concept of absolute return is gaining popularity even as its precise definition remains elusive. Elisa Trovato speaks to industry experts to clarify what it is and how to use it

Absolute return is now seen as a core investment. Credit Suisse’s asset management business explain how a wide range of absolute return strategies is necessary to cover as many portfolios as possible, regardless of risk budget

Arié Assayag, global head of hedge funds at SGAM Alternative Investments, explains how forward-thinking fund management houses can use their belief in the convergence between hedge fund management and traditional asset management to generate business success

A potential slow down in global markets could hit the outlook for corporate bonds, but few predict a severe impact. Also, fear of inflation could see a shift away from equities. Simon Hildrey reports

“Over the last two months, our balanced portfolio has benefited from several bets such as Asian and European equities and corporate and emerging high yield. We have also noticed a strong momentum of the total return strategy managed by Crédit Agricole, CAAM Dynarbitrage VaR 20. On the other hand, our exposure towards global government bonds has been detrimental to the performance. Considering the good level of jewellry demand coming from India and restricted offer, we have further increased our holdings on gold by reducing our exposure towards government bonds. We have also slightly increased high yield and total return bonds’ strategies to be less sensitive to the fixed income market.”

“We have decreased our euro bond exposure to reflect the sustained growth in the eurozone. On the fund level we have sold a euro benchmark fund and switched the assets into an emerging markets debt fund. On the equity side we have further reduced our US exposure and have increased our two alternative investment holdings.”

“Risk was rewarded in the final month of the fourth year of this bull market.

Our selections in Asia and the emerging markets are doing best, and home markets are benefiting from their euro denominations in the face of a weakening dollar and yen. Of particular note was the strong month for the recovering Mainfirst Avant Garde fund which rose over 6 per cent during December. In the short term we stay with our allocations as we enter 2007, but with extra vigilance given the good returns achieved in the last month.”

“Global equities rallied further in December, increasing by almost 3 per cent on average. In particular, the year ends with an average equity performance over 16 per cent with a strong return coming up from European and Emerging markets. We continue to believe that equity valuations are appropriate for further upside. In December we didn’t change the fund selection or asset allocations, our portfolio remain overweight on equities relative to the bonds.”

“The markets continued upwards in December, perhaps discounting the expected seasonal strength of January. Generally when something is widely known or expected, the markets will do what is required to ensure few make money from it. The asset allocation of the portfolio remained unchanged in December. However, within the equity section of our portfolio, we have continued to increase our exposure to the US markets taking advantage of both a weak dollar and relatively attractively priced stocks.”

“Last year was the fourth year of positive performance in a row, and it is unusual that equity markets rise five years in a row. However, it is likely 2007 could be one of these years, for several reasons, ranging from economics to valuations and liquidity. Our balanced portfolio keeps increasing the US equity weight. The remaining commodity holdings have been sold: the sector could go through a momentary weakness while investors are fearing economic and market cycles are heading to their late stage.”

“For 2007, our main scenario is based on a global expansion with only a modest slowdown in a context of low inflation. Asset prices should continue to be supported by the favourable liquidity environment. Equity valuations are reasonable in most markets. We believe equities should be the main beneficiary with most other asset classes offering less potential for capital gains. We have increased our exposure to US equities and continue to favour a balanced style mix. We remain rather on the fixed income side, since we believe the expected returns are not as appealing given the perceived risk.”

“Our portfolio is fairly balanced between euro bond and equity. In the euro bond area the investment in funds with a total return approach has been eliminated. The equity component of the portfolio is invested in a wide range of themes and fund styles. Our preferences go towards global themes rather than specific countries or areas.”

“Last year produced surprisingly strong growth, with the stimulus from industrialisation in China and India outweighing higher oil prices and interest rates. The latter should plateau in most regions in 2007, reducing the headwind for equities. At current yields, bond returns seem likely to match cash in 2007. Investors should expect further outbreaks of volatility, as high leverage in parts of the financial sector makes it liable to extreme reactions to small changes in investor expectations.”

Boutique chief executive Jean-Louis Juchault is confident his financial future is brighter than his rally prospects. Yuri Bender reports

Merrill Lynch Investment Managers’ merger with BlackRock means

its wealth management division must evolve into a standalone

operation. Alison Ebbage meets the man facing the challenge

Euroclear claims that its recent acquisition of EMXCo UK order routing provides the technology to cut companies’ trading costs by as much as 50 per cent. Elisa Trovato reports from behind the scenes

Each month in PWM, nine top European asset allocators reveal how they would spend E100,000 in a fund supermarket for a fairly conservative client with a balanced strategy